Building business credit is difficult because of three reasons.
The number one reason people fail to make business credit is that their business needs to be set up in a credible way to lenders. It is important to consider how vendors, creditors, and lenders perceive your business. A business must ensure it meets or exceeds all lender’s credibility standards before applying for business credit. A company must have over 20 credibility points to be considered credible.
It is important to use the exact legal name of your business to be seen properly. You must include all DBA filings you recorded in your full business name. Ensure your business name appears the same on all corporate papers, licenses, and bank statements.
Whether you have employees, your business entity must have an EIN (Federal Tax ID Number) to get business credit. Your business also has an EIN, just like your Social Security Number. Your Tax ID number can be used to open a bank account or to improve your business credit score. Verify that your business is listed with the same Tax ID number at all banks, agencies, and trade credit vendors.
Your business address must be in a brick-and-mortar structure with a physical address. It cannot be your home address, a PO Box, or a UPS address. Some lenders will require this criterion before they approve or fund.
Companies like Regus offer Business Address Solutions, which include an address where you can receive mail and parcels at your business address.
To be eligible for business credit, you must have a dedicated phone number for your business that is listed under your business name with 411 directory assistance. Your business listing with 411 will be verified by lenders, creditors, insurance providers, and vendors. While a toll-free number can give your business credibility and help you get in touch with vendors, creditors, lenders, and even insurance providers, you will need a local business number to be able to list your business with 411.
Lenders consider 800 or toll-free telephone numbers a sign that a business is credible. Even if you are a sole proprietor with a small business, a toll-free number gives the impression that you are a larger company. It is easy to set up a virtual 800 number or local number.
You could be “flagged” for being an unestablished company that poses too much risk by using your cell phone or home number as your primary business line. Do not give your personal or residential cell phone number as your business number. A virtual number can be forwarded to any landline or cell phone number.
Credit providers will search the internet for information about your company. It is better if they learn everything directly from your website. A company website can severely impact their chances of getting business credit. Many places offer inexpensive business websites. This will allow you to have an online presence that provides information about your company and contacts.
It is essential to have a company email address.
This is professional and increases your chances of being approved by a credit provider. It’s easy to set up an email address for your business.
People who apply with their social security numbers are the second reason they fail to build business credit. Never use your social security number to apply. It is possible to be requested by vendors. Some will tell you over the phone that they require it. However, it is best to submit your application first without it. Many people need to learn that you can apply for approval without it.
Your SSN is almost always used to guarantee your application.
If you already have business credit, you can easily check if you are eligible for credit. In most cases, true business credit does not require an SSN to be approved.
Your EIN is used to get credit for business credit. Once you have sufficient credit to support your EIN, your application can be approved without your SSN. In most cases, an SSN will be required to pull your credit. This personal credit will be used to make the approval decision.
If your EIN credit score is high enough, most credit issuers will approve your application without your SSN. Your EIN credit score might need to be stronger to get approval. They may then ask for your SSN. Credit can be obtained based on your EIN, regardless of what credit representatives might tell you.
The third reason people fail to build business credit is that they apply for credit incorrectly. You can start a business credit report in the same way that a consumer credit report is. However, you will need small credit cards. To help build a credit profile, the business can be approved to receive small credit cards. These cards are often referred to in the industry as “vendor credit.”
Vendor credit is when a vendor extends credit to your company on “Net 15, 30, 60, or 90-day terms.” This allows you to purchase their products and services up to a maximum amount. You have 15, 30, 60, or 90 days to pay the bill. If you have Net 30 terms and want to buy $300 worth of goods today, the $300 payment is due in 30 days.
Getting products or services that your business requires and delaying payment for up to 30 days is possible. This will ease cash flow. Upon verification of your EIN, 411 listing, and other details, some vendors will approve your company for Net 30-payment terms. If your Net 30 account still needs to report your tradeline to Dun & Bradstreet, the DUNS system will activate your file. Equifax and Experian also have this feature.